TMI Blog2012 (4) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... Member This appeal is directed against CIT(A)'s order dated 21st January, 2011, in the matter of assessment under section 143(3) of the Income tax Act, 1961, for the assessment year 2007-08. 2. In ground Nos.1 to 4, which are inter connected, the assessee has raised the following grievances: "1. The ld CIT(A) erred in directing the AO to rework the disallowance made by him of Rs. 19,87,230 u/s. 14A r.w. Rule 8D in the same manner and to the same extent even while agreeing that Rule 8D had no application for A.Y. 2007-08 as held by the Jurisdictional High Court of Bombay in the case of Godrej and Boyce Manufacturing Co. Ltd. v. DCIT (328 ITR 81) and in total disregard of the principle laid down by the Hon'ble Supreme Court of India in CIT v. Walfort Share Stock Brokers Pvt. Ltd. (326 ITR 01). 2. The ld CITG(A) erred in ignoring your appellant's plea that the entire average investment of Rs. 1,84,50,588 was out of partners' own capital of Rs. 2,47,58,004 and thus no part of the interest paid by your appellant on business borrowings was attributable to such investment and as such the ratio of Reliance Utilities Power Ltd (313 ITR 340) Bombay High Court, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m part of the total income as appearing in the balance sheet of the assessee on the 1 day and the last day of the previous year, C. the average of total asset as appearing in the balance sheet of the assessee on the 1 day and the last day of the previous year AND, calculate this as follows: A x B C And take, III. the amount equal to 0.5% of the average of the value of investments, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the 1 day and the last day of the previous year. For the purpose of the above (total assets) shall mean total assets as appearing in the balance sheet excluding the increase on account of re-valuation of assets but including the decrease on account of revaluation of assets." 4. Learned CIT(A) then proceeded to justify the above formula by observing as follows: "The logic and rationale of taking 0.5% of the average value of the Investments - income from which does not or shall not form part of the total income is because the appellant will have certain variable expenses and certain other expenses for managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance in consonance with the decision of the Hon'ble Bombay High Court in Godrej Boyce case. The conclusion drawn by the Hon'ble Bombay High Court in the case of Godrej Boyce is based upon the "ratio" of the decision of the Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Moody 15 ITR 519 (SC) wherein the Hon'ble Supreme court very clearly held that for an expenditure to be allowed it was not necessary that it was a profitable one or that in fact any profit was earned - meaning thereby that the quantum of income cannot decide the allowability of the expenditure - therefore the contention of the appellant that the expenditure to be estimated should be in relation to the quantum of exempt income - 2% to 3% or at the maximum 5% - and accordingly the disallowance worked out - cannot be applied now to the present appeal in view of the decision of the Hon'ble Bombay High Court in Godrej Boyce and Hon'ble Supreme Court in CIT v. Rajendra Prasad Mody 115 ITR 519 (SC) and therefore the disallowance of the expenditure in relation to the exempt income has to be for both direct and indirect expenses and for which the reasonable method has to take into consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopting it as a reasonable and fair basis for computing expenses disallowable u/s. 14A. The success achieved by the assessee turned out to be hollow and infructuous. The assessee is aggrieved and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 7. We find that Hon'ble Bombay High Court's judgment in Godrej's Boyce Mfg. Co. Ltd.'s case ( supra ), Their Lordships have held that so far as the assessment years prior to the assessment year 2008-09 are concerned, disallowance under section 14 A(1) can only be made and that " for that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act" and that "the Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record". Undoubtedly, such expenses are required to take into account 'direct expenses' as also 'indirect expenses', b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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